Visit at the Finbee office in Vilnius and interview with CEO and founder Laimonas Noreika. Review 2019

Visit at the Finbee office in Vilnius and interview with CEO and founder Laimonas Noreika. Review 2019

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Finbee review 2019

I went to visit the Finbee office which is located in a beautiful building in the old historic center of Vilnius, Lithuania. The building used to be a monastery, so the surroundings were unique. The meeting rooms are located in a part of the building currently under renovation, so we went out for a small breakfast having some kind of sweet cheese dish and a coffee while we talked. For those of you following me on my Facebook page or Instagram will know that I love to try local food that stands out during my travels. I of course also met the employees and had a tour of the office during my stay. 

The interview with the Finbee CEO and founder Laimonas Noreika

Georg: 
So Laimonas, can you tell me a little bit about Finbee and how you got started with the platform?  

Laimonas: 
We started Finbee a little over four years ago. In August 2019 it was four years ago. The reason that we started was that I was an investor at Bondora. I thought that their model was lacking and I thought that we could create a better platform for investors. So Finbee was created more from the investors perspective than from a marketeers or finance perspective. It was created to give investors the expected yield. So I invited my friend Darius because he has banking experience, mostly as a credit analyst. Together we created the Finbee platform. First we started with consumer loans. At that time the market in Lithuania was not regulated so there was a lot of obstacles in starting a business like Finbee. But already four months after we started the law was already in place and we could be fully legal and compliant. The team grew over the years and after two years we started SME lending, that is loans for small and medium-sized businesses, but just small amounts like 10-15000 euros and most of the loans were unsecured. It started off slow but now Finbee has a lot more of them. We are happy that Finbee has achieved quite good yields as well. Today Finbee has 20 people working with loans for SMEs and consumers. We do direct lending, so we ourself finance the borrowers so Finbee has no loan originators connected. We find the borrowers, we do the credit scoring, we send out reminders, and we do the collection. We are proud that Finbee is one of the highest-earning platforms in Europe. The net result for consumer loans is 17%. I actually think that is a little too high but it is what it is and at the moment investors are getting some nice results. SMEs yield around 14% so that is a pretty good result as well. So double digits after recovery and everything is pretty good. Another interesting detail about the SME loans is that almost half of the money is funded by a governmental organization and the rest is funded by retail investors. This is due to a government initiative to help the SMEs with funding. Because the market in Lithuania is regulated, the government can actually participate in these investments on the Finbee platform

Georg: 
So you don’t just have Finbee in Lithuania but also in the Czech Republic? 

Laimonas: 
Yes. We wanted to scale Finbee to the Czech Republic as well because their market for consumer loans is like Lithuania 10 years ago. They are late with regulations and the interest rates are super high there. They payday loans are really active there. Finbee wanted to go there and do the refinancing of the payday loans and that is actually how we started Finbee here in Lithuania. But we found out that there was a problem in the Czech Republic that we did not see at first. There is a law that says that the debt to income ratio needs to be at a certain level, and that is part of how we do our credit scoring. But the point is that we give them installment loans for, let us say 2 or 3 years, and if the borrower has problems paying after 6 months then he will sometimes go to one of the payday lenders and borrow more money. The payday lenders are actually not allowed to do this according to the law, but they do it anyway. So that was a problem and our default rates skyrocketed after 6 months. So Finbee decided to hold the operations there and wait for the regulator to step in and stop this activity from happening. Finbee does not want to lose investors money. 

Georg: 
So at the moment, Finbee does not have any loans in the Czech Republic? 

Laimonas: 
We still have a small portfolio, but we are not opening new loans in the Czech Republic right now. 

Georg: 
So you still have people working for Finbee in the Czech Republic? 

Laimonas: 
There are still two people sitting there doing recovery. 

Georg: 
So Finbee has 20 people here at the office in Vilnius. Do you have all the resources in-house? Or do you have some roles outsourced? 

Laimonas:  
Finbee used to have compliance outsourced, but for 3 months now we have had compliance in-house. Digital marketing is currently outsourced, but we plan to do that internally as well. But everything else is in-house. We have two IT developers. In customer service, we have five salespeople and three in operations. Then we have transfers and credit scoring. 

Georg: 
Does Finbee use an automated credit scoring? 

Laimonas: 
Yes. On top of that, we have internal know-how. Only 7% of the credit applications we receive are actually approved. Banks usually have around 10-11%. So we are a bit stricter and that is seen in our results. Compared to the Lithuanian platforms we have 30% lower default rate than Savy, which is Finbee‘s nearest competitor. 

Georg: 
So why does Finbee have a lower default rate than other Lithuanian platforms? What procedures or know-how do you have that sets you apart from the others? 

Laimonas: 
I don’t want to sound naive, but it is a part of our values. So we are declining more borrowers than others because we know that means happy borrowers and happy lenders. Credit scoring is not just about the historic results but also about the future. Will the borrower be able to repay in two years or three years? Finbee think about what might change. In addition, Finbee does not give a loan to a person if we did not have a phone call with them. so it is not fully online. We want to talk to the borrower and ask how he or she is going to use the money. Only Finbee meets all borrowers in person. So we either send a courier to the home of the borrower or the borrower comes to the office, so we can verify their identity. That creates a bond. The borrower knows that we know that he or she is who they say they are, and we know that their address is correct. This prevents many cases of fraud and psychologically it creates a stronger bond. Finbee looks at investors money like they are our own money. If I would not personally give my own money to a borrower, I would as well not give out investors money. These are maybe small details, but we think they matter. 

Georg: 
Well, I would say that approach is actually quite unique. I do not know of any other online platform having this personal contact with borrowers. I actually really like it. It is very important to know that the borrower is who he says he is, and also what the amount borrowed will be used for. If the purpose of the loan is to use the money to do payments on another loan that the borrower has, then the application should be declined for sure. This is a very bad sign! The phone call or the personal contact will tell you a lot more, that just having a text field in your application form that says: “What will the funds be used for?”. It seems like a lot of work from Finbee‘s side, but as a lender, I am very happy that you have this procedure in place! 

Laimonas:  
True. A lot of other platforms has the problem that the first installment is not paid. In this case, it is many times fraud. A false ID or address could have been used in the application process. Even a false mailbox. The money is then stolen and you will never get them back. The numbers are quite significant on the different platforms. Because of these procedures, on our platform, these numbers are smaller and you can see the results on our overall portfolio. Of course, Finbee can still lose money if the borrower moves to another country. But this can happen anywhere, and that is not something we can foresee. So that is a problem for all platforms. We are trying to make a procedure for this, but that is very complex.  

Georg: 
Something like that could probably be implemented with success, using AI on social media. Can you tell me a bit more about some of your forces behind Finbee? Tell me a bit more about the knowledge and the experience of the people behind Finbee. Are you an investor yourself? 

Laimonas: 
I was a small retail investor when we started. I am more of a business person. I started doing entrepreneurial stuff when I was 18 years old. I found myself in the payment industry. So I started Finbee from a fintech background. My partner Darius had a history in the banking sector. So he is a CFA, a Chartered Financial Analyst, so he is responsible for the operations and the math behind everything. Audrius is the person behind SME lending. He joined the company about two years ago. He is super experienced in corporate banking and recovery of the loans as well. He used to be an advisor to Swedbank in Ukraine. He is a young and very energetic person. It is important to us that the person we employ wants to be helpful towards others. It id not just about your responsibility to the role. Finbee is about creating value for other people. 

Georg: 
You actually have two different domain names. Is that two different platforms or just two different language versions? That would make a lot of sense in terms of SEO. 

Laimonas: 
Yes. It is just two language versions of the same website. 

Georg: 
So does Finbee have an internal lawyer for your legal tasks and procedures? 

Laimonas:  
Actually, we have legal outsourced. It is a quite comprehensive task. 

Georg: 
Who can actually invest on the Finbee platform? Do you just need a European IBAN? 

Laimonas: 
You can have an address outside of Europe, but you still have to pass the AML procedures. They are quite strict now in Europe. But anyone who has a European bank account can in principal invest with Finbee

Georg: 
So you don’t have buyback on Finbee. How does that affect the earnings for investors? 

Laimonas: You have to consider a few things. First of all, it is the interest rate that you expect to get. Let us say you expect 19%. However, then you have the default rates. On Finbee the default rate is 6.7%. The important thing here is something called the exposure default rate, as not all loans that default will default from day one, but at some time during the loan term. So the exposure default rate shows how much money got into risk at the default moment. So if we look at the average on Finbee, then only 56% of the 6.7% default rate is the actual exposure default rate. This is quite important to count in. The exposure default rate is about 4% at Finbee. From that 4% is then the recovery rate. That is the part of the money that Finbee is able to recover at a later date. Finbee recovers 63% over 3 years. So from the 19% we initially expected, the net result is a little over 17%. When it comes to securities, in business loans we actually have personal CEO or owners guarantee. So it the company defaults, the claim goes to them personally. 

Georg: 
So if a borrower is not able to pay, will you maybe change the agreement so he can make smaller payments or maybe pay at a later date? 

Laimonas:  
No. Finbee is a bit strict here. We feel that this will only push the problem into the future. In some cases, we may choose to extend the payment date a few days, but it is not common. 

Georg: 
When a loan comes in on the Finbee platform you can bid on a part of the loan either manually, or using autoinvest or Autolend, as Finbee calls it. Will investors earn money from when the bid is made or only when the loan is fully funded? 

Laimonas: 
They will earn from the time the loan is fully funded. 

Georg: 
Will investors get their loans funded faster if they set the Autolend to only pick up smaller loans? Can you set the loan size in the Autolend at Finbee

Laimonas: Yes, but the number of small loans are not that high. The average maturity on loans is 33 months and the average loan size is about 2100 euros. So the small loans below 1000 euros are really rare. 

Georg: 
So in your Autolend tool, what many other platforms call autoinvest, you have some presets that you can choose.  There are three different presets on Finbeedepending on your risk level and how high returns you would like. Conservative, Balanced or Progressive. After choosing one of them, you can then keep the default settings or change some of them? 

Laimonas:  
Yes. The presets are just help for investors to get started but all the settings of the Autolend portfolio can be changed manually after one of the presets has been chosen. 

Georg: 
So if a lender has a bad credit history and they apply for a loan on Finbee, is there a possibility that they will get the loan but maybe with a low rating and a high interest rate? 

Laimonas: 
They can apply for sure. And they do. But they will never get the loan. It is not allowed by the law to give them the loan. We have some very strict rules about that. For example, the debt to income ratio cannot be higher than 40%. The lender also needs to have been employed at the same employer for at least three consecutive months. These are just a few of them. So there are a lot of these rules in place to protect both lenders and borrowers. 

Georg: 
In the Finbee Autolend, you actually put a lot of settings on different information about the borrower. This is something I have only seen on Lithuanian platforms. You can choose borrowers age, gender, work duration at current employer, personal income, household income, loan purpose, marital status, residential status, and debt to income max ratio. You can even find information on job title, education, number of children and so on. This is actually really awesome for investors, as most of these things help paint a picture of the borrower’s current financial situation. I know that this type of information is actually used as a part of the credit scoring for consumer loans in Denmark. Where do you get this information from? Is it information the borrower enters in the application form on Finbee or is this something Finbee can pull from a number of data providers? 

Laimonas: 
Lithuania is one of the best places for getting this type of information about the borrowers. We see the full picture. For example, we can also see any loan a borrower applied for, even if they were approved or not. This goes for any bank, payday lender or any other type of financial institution. We can get information about their salary as well. This basically means that borrowers cannot commit fraud by giving us false information. We can see everything! 

Georg: 
Currently, the Finbee Autolend only works with consumer loans. So you have to invest in the business loans manually if I understand it correctly? 

Laimonas:  
Yes. But we are currently working on incorporating the investments in business loans as well. But right now it is manually. 

Georg: 
It makes a lot of sense to invest manually actually because you can see a lot of information about the businesses. You can sometimes see the balance sheets, there are business descriptions and some more information about the businesses and the loan. I also like that Finbee has ratings on all loans, both business loans, and consumer loans. 

Laimonas: 
Another thing we do for transparency in that you can actually export and download our full loan book to Excel and then analyze it yourself if you want to. Once you are logged in on Finbee, you can find in in the footer under the menu “Loan data export”. 

Georg: 
So how does Finbee make a profit? You are a meeting place between the lender and the borrower, so do you make profits from certain fees? 

Laimonas: 
Yes. Finbee has two administration fees that the borrower pays. 

Georg: 
What fees does Finbee have, that the investors on your platform pay? 

Laimonas:  
On the secondary market, there is a 1% fee for selling loans. We are constantly thinking about removing this fee because we don’t earn a lot from it, but psychologically, I think that this small fee keeps some investors from investing with Finbee

Georg: 
The platform you have right now is a white-label solution from the UK, but you actually have two developers inhouse working on a new version of the Finbee platform, that will be totally unique for you. 

Laimonas: 
Yes! Hopefully, the new Finbee platform will be launched this year. It will be faster, more stable and with an updated and proper look and feel. We are also working to implement an e-money license that will make things more transparent for the regulators. So we are doing a lot of back-office work this year as well that is not really visible to investors. 

Georg: 
So where do most of your investors live? 

Laimonas: 
Most of our investors in numbers are currently from Lithuania. A significant part of our investors come from Germany. From Switzerland, Austria, Norway, and the UK we also have quite a few. So we have investors from all over Europe, but most of them are currently still Lithuanians. 

My final thoughts about Finbee

I have only been investing with Finbee for about 3 months at the moment. So this is still a new platform for me. However I am starting to feel more comfortable with the platform so I just transferred a little more money. But I am still being careful. I am using the Balanced preset in the Autolend and so far no defaults. I also invested manually in a few business loans. One thing I really like about Finbee and probably the thing that makes them stand out the most, is the personal contact and personal face-2-face verification of each customer to prevent fraud. I would like to see that business loans would be included in the Autolend tool and it takes a little while to get new funds invested at the moment. I really like that there are so many settings in the Autolend with information about the borrowers. As Finbee is registered in Lithuania the platform in fully regulated by the Bank of Lithuania. This is a big plus! Sign up for the newsletter on this blog to see how my investments with Finbee will develop over time. 

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What do you think of the face-2-face verification Finbee uses with all of their borrowers? Have you ever heard about Finbee before? Are you thinking about signing up? What do you think about the fact that Lithuanian platforms are regulated? Please leave a comment or any question you have below. If you know someone who would like to get started investing or is already investing, feel free to share this article using the social media sharing buttons below. 

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